Friendly Fraud – All to Blame for E-Commerce’s Worst Enemy

Feb 26, 2019

By now, everyone knows that Facebook not only cashed in the rampant friendly fraud generated by kids unintentionally or without parents’ knowledge downloading games from the platform, but it encouraged the practice.

A few years ago, the social media giant informed its employees of friendly fraud and explained how it should not try to block it.  The result was some kids spending thousands of dollars and their parents initiating chargebacks, hitting Facebook with a whopping nearly 10% in chargebacks. That’s a lot of chargebacks. To give you some perspective, the Federal Trade Commission considers businesses with a 2% chargeback ratio engaging in deceptive business practices.

Unfortunately, Facebook is not the online business to facilitate friendly fraud . Also, Facebook is not the only one at fault. Merchants, banks, regulators, and consumers share the blame, too. Consumers want instant gratification, so to give them what they want, merchants increase prices, reduce security to improve authorizations, and have employed all types promotions and scams to make them happy. While doing so, they also created a culture conducive to friendly fraud. Without global regulation, expect the situation to get worse.

Understanding the Different Types of Fraud

Most people are familiar with fraud, like someone using a stolen credit card or another’s person identity to make a purchase. Merchants have taken many steps, like two-step authentication and other efforts, like facial recognitions, to prevent this type of fraud. However, other types are becoming more rampant and causing greater problems.

Friendly fraud is when a shopper intentionally seeks a refund for a charge from its card company instead of a merchant because the person does not want to pay for the product or service he/she purchase. It’s akin to shoplifting, because they want to keep something without paying for it.

Unintentional or accident friendly fraud most often occurs when a merchant has poor customer service, poor refund and return policies, and bad business models. In most cases, consumers are unable to get anywhere with merchants, so they initiate chargebacks. This is also the case when people download apps in which it was not clear that there was a cost to get them. Another type is when child accidentally downloads a game because he/she didn’t know his/her parents’ credit card was connected to the device being used.

Though the charge was definitely a mistake, parents need to take steps, such as adding parental controls, to prevent this. Regularly monitoring your child’s behavior also can help. In all actuality, the unauthorized charge should real be the cardholder’s fault not the merchant.

How to Fix the Problem

Merchants need to recognize all types of fraud, have appropriate tools in place to prevent them, and use a chargeback mitigation tool. Also, regulars and governments need to start thinking about how they can help before brands get completely destroyed and lose greater value. If this happens, and competition dwindles, the consumers will ultimately pay the price. Unless governments, including the U.S., step up to the plate and regulate the internet on a global level, all parties involved will continue to feel the financial pinch.

In Conclusion

Companies will have to strike a balance between satisfying customers demands and taking the actions they need fight friendly fraud. Merchants also should push pressure on banks and regulators to do their parts, as well.

If you are a merchant that needs merchants services, including fraud protection and chargeback mitigation tools, then consider (EMB). EMB’s partners with a system that can mitigate one in four chargebacks. Apply online today.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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